Understanding ROI Expectations of For-Profit Social Enterprise Investors

When approaching potential investors for a for-profit social enterprise, one of the key questions often asked is, "What ROI does a for-profit social enterprise investor expect?"

The Variability of ROI Expectations

ROI expectations vary greatly among all investors. These variations stem primarily from the accurate assessment of the risks involved in returning the original principal, as well as whether any additional expected returns justify taking that risk. This is a fundamental consideration for any investor in any asset class.

Impact of Social Return on Investment (SROI)

There are certain working assumptions that affect how investors adjust their ROI expectations based on the potential realization of a social return on investment (SROI) or social impact.

It would be naive to assume that all impact investors will follow a uniform mental calculus of risk and reward. The idea that:

Higher SROI potentials Lower ROI expectations

or vice versa

Higher ROI potentials Lower SROI expectations

may hold some truth, but it is not universally applicable. Many individuals confuse charity with investing, a perspective which can significantly misalign their understanding and competence in both.

The reality of investing is nuanced and complex, dependent on numerous factors including market rates, competing capital, company characteristics, team capabilities, product and market fit, and most importantly, the financial and emotional readiness of the investor.

Aligning Expectations for Successful Investments

To successfully raise money from for-profit social enterprise investors, it is crucial to manage their expectations. The desired return from the investor may significantly differ from what you expect.

It is essential to clearly communicate and align these expectations to ensure mutual drive and support for the idea. This alignment can be achieved by:

Identifying the asset class, market, and geographic focus of the investors. Matching the level of impact with the investor's interests. Gauging the ROI expectations, ranging from a market-rate return to a return of the original capital.

Investment success often hinges on these factors, and managing them effectively can lead to a more successful fundraising endeavor.

Conclusion

In summary, understanding and addressing the ROI expectations of for-profit social enterprise investors requires a nuanced approach. By carefully aligning your expectations with the investor's, you can significantly enhance the chances of securing the necessary funding. Remember, the key is clear communication and a thorough understanding of both the market and the psychology of the investor.

Good luck on your fundraising journey!